Distributional Effects of Monetary Policy

Does Monetary Policy Affect Income Inequality in the Euro Area?

“…The microsimulations of Bonifacio et al. (2021) for the U.S. and the EA show that wealthy and middle‐income households with large fixed‐income investments (e.g., bank savings) lose from the negative interest shock, while at the same time benefit from the resulting rise in equity prices. Thus, the net effect of the financial channel might be subdued.…”

“…On the other hand, monetary expansion reduces interest rates on deposit savings and other interest-bearing assets, lowering financial incomes derived from such assets (i.e., reflecting to some extent the direct effect). The microsimulations of Bonifacio et al (2021) for the U.S. and the EA show that wealthy and middle-income households with large fixed-income investments (e.g., bank savings) lose from the negative interest shock, while at the same time benefit from the resulting rise in equity prices. Thus, the net effect of the financial channel might be subdued.…”

“…Second, a reduction in the policy rate could result in unrealized capital gains, which would benefit the balance sheets of the wealthy but might be reflected in households' income only with some delay (Bonifacio et al. 2021). Nevertheless, such an effect would be more likely a consequence of a prolonged monetary policy easing rather than a temporary policy rate reduction.…”

The Housing Supply Channel of Monetary Policy

“…This questions the view that monetary policy may have little impact on renters (Aladangady 2017, Wong 2021 and bears relevance as mortgagors, and to a lesser extent renters, tend to be associated with the largest MPC (Cloyne et al 2020). Moreover, by affecting house prices differently, and thus housing wealth and consumption, monetary policy may have important distributional effects (Coibion et al 2017, Holm et al 2021, Amberg et al 2022, Bonifacio et al 2022, Amaral et al 2024. Overall, our results suggest that the monetary policy transmission depends on state-specific characteristics.…”

Differential Effects of Macroprudential Policy

“…Another potential concern is that the differential effects on new loans may be driven by the interaction of other contemporaneous policies with income. The literature has shown that monetary policy could have heterogeneous effect across the income distribution of households (see for example Bonifacio et al, 2021). To mitigate the concern that monetary policy may drive our results, we rerun our baseline regressions (1) for loan amount while controlling for the interaction term between a monetary policy shock and household income.…”